Colorado approves first pot banking system

Colorado lawmakers approved the first financial system for the marijuana industry Wednesday, a network of uninsured cooperatives designed to give pot businesses a way to access basic banking services.

AP

Rep. Jonathan Singer, D-Longmont, listens to discussion on a bill he sponsored which would allow marijuana dispensaries to form financial co-operatives, at the Colorado Legislature, in Denver, Wednesday May 7, 2014.

The plan seeks to move the marijuana industry away from its cash-only roots. Banks routinely reject pot businesses for even basic services such as checking accounts because they fear running afoul of federal law, which considers marijuana and its proceeds illegal.

The result: Pot shop owners deal in large amounts of cash, which makes them targets for criminals. Or they try to find ways around the problem, like drenching their proceeds in air freshener to remove the stink of marijuana and try to fool traditional banks into accepting their money.

Colorado became the first state to allow recreational pot sales, which started Jan. 1. Washington state will follow suit, with retail sales expect to start in July.

The U.S. Treasury Department said in February that banks could serve the marijuana industry under certain conditions. With the industry emerging from the underground, states want to track marijuana sales and collect taxes. It's a lot easier to do that when the businesses have bank accounts.

But most banks have shrugged at the Treasury guidelines, calling them too onerous to accept marijuana-related clients. The result is a marijuana industry that still relies largely on cash, a safety risk for operators and a concern for Colorado's pot regulators.

The bill approved Wednesday would allow marijuana businesses to pool money in cooperatives, but the co-ops would on take effect if the U.S. Federal Reserve agrees to allow them to do things like accept credit cards or checks.

Lawmakers from both parties supported the banking co-ops as a way to properly audit marijuana shops and to make sure they're paying all their taxes. Dispensary owners came to the Capitol this session to tell of their difficulties paying taxes and utilities in cash and the dangers of dealing in cash.

"It is very easy to see somebody get killed over this issue," Marijuana Industry Group Director Michael Elliott testified last month.